REGIONAL TREASURY CENTRES IN SOUTH EAST ASIA Ã¢Â€Â“ CASE ...

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Management, Vol. 14, 2009, 1, pp. 77-101P. Polak, R. R. Roslan: Regional treasury centres in South East Asia – The case of Brunei…foreign currencies, as well as in many others. The ability to conduct transactionsin foreign currencies is a crucial part of a RTC function. As the RTCs deal withcash management, especially with the cross-border transfers, the ability toprovide instant conversion of currencies serves well in making a locationsuitable to accommodate a RTC.96LCn 11 – RatingsRatings offered by Coface consider a country’s overall liquidity andsolvency (i.e. its “business climate”). Singapore and Hong Kong are both giventhe best rating of A1 for their business climate, whereas it is difficult to findonline ratings for Brunei.8. DISCUSSION AND RECOMMENDATIONS8.1. DiscussionFrom the results, it can be clearly concluded that Brunei Darussalam hasmore expensive banking service fees and charges and higher percentage taximposed on company profits by the local authority, compared to Singapore andHong Kong. This may be the first obvious sign indicating Brunei’s lower levelof competitiveness, not only in terms of attracting RTCs, but also in attractingMNCs. Major companies deal with major movements of funds, in amounts ofmillions, or even billions. If Brunei falls short in competing with the othercountries, they will become the preferred location for regional headquarters orfinance offices to be set up by these major companies (Economist IntelligenceUnit Limited, 2000). Competing closely to Singapore and Hong Kong, as thesetwo countries are Asia’s international financial centres (Levieux, 2007), isimportant, if Brunei are to follow in their footsteps.The averaged price for making overseas payments provided by the banks inBrunei is higher than those offered in Singapore and Hong Kong. MNCsoriginating from other countries will not benefit from cost savings by locatingtheir regional operations in Brunei. Profits will not be taxed as much in HongKong or Singapore compared to Brunei, which has the highest corporate taximposed on profits. Having the highest percentage of withholding tax alsoreduces Brunei’s competitiveness in attracting RTCs, as these entities areprimarily tax driven (Anwar 1999, Zink 1995, Murphy 2000a, Casalino 2001,Giegerich et al 2002, Simkova 2005, Polak 2007). A benign tax system is thecrucial aspect to attracting RTCs (Mulligan, 2001).
Management, Vol. 14, 2009, 1, pp. 77-101P. Polak, R. R. Roslan: Regional treasury centres in South East Asia – The case of Brunei…In terms of existing RTCs in the region, Brunei currently has none. Theclosest RTC is in Labuan - an island eight kilometer off the coast of Borneo,where Brunei Darussalam is located (Wikipedia, 2008). The RTC is the regionalfinance office with treasury functions for Shell Malaysia. Due to this,considering Brunei as a prospective location for an RTC may not be viable. Atthe other hand, Singapore is the fourth largest trader in derivatives and the ninthlargest offshore lender, which makes it an attractive location for setting up aRTC, with already approximately 150 existing RTCs (Giumarra, 2001). HongKong is the next favorite location for regional headquarters of MNCs and RTCsin Asia (Business Asia, 2000, Levieux, 2007). Although the actual number ofRTCs that have been established in Hong Kong is not available, it can bedefinitely considered as the major rival of Singapore.Flexible regulation is also a factor to consider when considering a locationfor a RTC (Zink, 1995, Anwar, 1999, Geigerich, 2002). Although Bruneicurrently does not strictly regulate transfer of funds between financialinstitutions, this is also not the casefor Singapore and Hong Kong. The facilityfor foreign currency transaction is already available in Brunei, although it is notas developed compared to Singapore and Hong Kong. Some banks in Bruneioffer accounts and services in most important foreign currencies, i.e. USD,EURO, GBP, AUD, JPY, SGD, and a few more. This shows that Brunei hassome potential to start off the improvements needed to improve its position toattract RTCs or even regional headquarters of MNCs.At the time of writing, Singapore and Hong Kong had the best Cofaceratings for the country's business climate. Other than having a good businessenvironment, Singapore and Hong Kong are considered by this rating companyto have “available and reliable corporate financial information together withvery good institutional quality”. Information regarding Brunei should be alsoeasily available to potential overseas investors, which is not the case now.8.2. RecommendationsIn order to compete with Singapore and Hong Kong, it is important forBrunei to remain vigilant in terms of regulations significant for potentialoverseas investors. According to this study, reassessing banking facility chargesfor businesses/corporations, especially the international ones, would be a fairstart. Next, Brunei’s current taxation regulations, imposed on any types ofcompanies both local and international, should be examined. Singapore and97
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